Trading by Numbers

Rick Swope is a cofounder of Pro Market Advisors, which specializes in premier investment education and trading consultation services for retail and institutional clients such as E*Trade Financial Corporation, the Options Industry Council, and the International Securities Exchange. Previously, he was the co-owner and managing partner of one of the first online trading firms. He is the coauthor of The Market Guys' Five Points for Trading Success (Wiley).W. Shawn Howell is a cofounder of Pro Market Advisors. He spent a decade working with Charles Schwab's most affluent and sophisticated traders as well as managing teams of specialized brokers. In 2005, Shawn concluded his tenure as the divisional manager of Schwab's Active Trader Field Team to teach currency, stock, option, and technical trading strategies across North America for Investools. In 2007, he became the Managing Director of the forex enterprise for Thinkorswim Group Inc. In 2009, Shawn and longtime friend Rick Swope cofounded Pro Market Advisors.

• Acknowledgments xi Introduction xiiiCHAPTER 1 Market Scoring 1Intuition Can Be High Tuition 2The Role of Technical Analysis 3CHAPTER 2 Trend Scoring 9Trend-Scoring System 10CHAPTER 3 Volatility Scoring 27Volatility Overview 28Volatility Scoring System 34Know That You Don’t Know 42CHAPTER 4 Protecting Your Position 43Seven Keys to Risk Management Success 44Three Legs of Managing Risk 54Setting Stops 63Safety in Numbers 66CHAPTER 5 Covered Calls 67Getting to Know the Strategy 68Strategy in Action 70Strategy Management 71Strategy Application 76CHAPTER 6 Long Calls 81Getting to Know the Strategy 81Strategy in Action 85Strategy Management 91LEAPS 92Strategy Application 95CHAPTER 7 Long Puts 101Getting to Know the Strategy 101Strategy in Action 102Strategy Management 104Speculative Puts 107Collars 110Strategy Application 111CHAPTER 8 Straddles and Strangles 117Getting to Know the Strategy 118Strategy in Action—Straddle 119Strategy Management 122Strategy in Action—Strangle 124Strategy Application 125CHAPTER 9 Debit Spreads 131Getting to Know the Strategy 132Strategy in Action 135Strategy Management 136Strategy Application 141CHAPTER 10 Cash-Secured Puts 145Getting to Know the Strategy 145Strategy in Action 147Strategy Management 149Strategy Application 153CHAPTER 11 Credit Spreads 159Getting to Know the Strategy 160Strategy in Action 160Strategy Management 162Strategy Application 168CHAPTER 12 Horizontal Spreads 171Getting to Know the Strategy 173Strategy in Action 175Strategy Management 176Strategy Application 179CHAPTER 13 Diagonal Spreads 183Getting to Know the Strategy 184Strategy in Action 190Strategy Management 191Strategy Application 193CHAPTER 14 Index Options 197Getting to Know the Strategy 198Strategy in Action 204Strategy Execution 204CHAPTER 15 Butterfly Spreads 207Getting to Know the Strategy 208Strategy in Action 210Strategy Management 212Strategy Application 213CHAPTER 16 Iron Condors 217Getting to Know the Strategy 218Strategy in Action 218Strategy Management 221Strategy Application 223APPENDIX Strategy Profit and Loss Diagrams 227About the Authors 231Index 233